Convection permitting simulations using the Model for Prediction Across Scales‐Atmosphere (MPAS‐A) are used to examine how microphysical processes affect large‐scale precipitation variability and extremes. An episode of the Madden‐Julian Oscillation is simulated using MPAS‐A with a refined region at 4‐km grid spacing over the Indian Ocean. It is shown that cloud microphysical processes regulate the precipitable water (PW) statistics. Because of the non‐linear relationship between precipitation and PW, PW exceeding a certain critical value (PWcr) contributes disproportionately to precipitation variability. However, the frequency of PW exceeding PWcr decreases rapidly with PW, so changes in microphysical processes that shift the column PW statistics relative to PWcr even slightly have large impacts on precipitation variability. Furthermore, precipitation variance and extreme precipitation frequency are approximately linearly related to the difference between the mean and critical PW values. Thus observed precipitation statistics could be used to directly constrain model microphysical parameters as this study demonstrates using radar observations from DYNAMO field campaign.